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For roughly three decades, the Chinese economy registered a staggering annual growth rate in the vicinity of 10 percent. Over the past four years, however, it has clearly slowed from that breakneck speed.

There has also been increased skepticism about the reliability of the old growth figures, and even whether today’s slower pace of expansion can be maintained. These signs and others suggest that China may be entering a period of stagnation.

Is this true?

While China’s economy recorded its slowest growth in 25 years in 2015, its official number was still a respectable 6.9 percent.

Many who follow China are increasingly relying on microeconomic data to assess the direction of China’s economy. This includes electricity consumption, passenger traffic, service sector spending, freight volume, and credit growth.

Here, the data is mixed. For example, in 2015, the number of international passengers traveling to and from China reached 42 million—a new record. The service economy has also been growing briskly, at an 8-9 percent pace in recent years.

On the other hand, the volume of rail freight traffic has declined for two consecutive years and electricity consumption has risen only 0.5 percent during the past year.

These microeconomic factors point to an economy growing in the 4-5 percent range.

Most importantly, much of the recent growth has been manufactured by enormous credit growth. Despite the authorities’ goal of wanting to trim total debt, total social credit growth is advancing close to the pace it was during the 2008-2009 global financial crisis.

Much of the rise in debt has been at the corporate level. According to the Bank for International Settlements, Chinese companies have accumulated $18 trillion in debt, equivalent to approximately 170 percent of gross domestic product.

The loans have come from the banking sector, which are now very vulnerable in the event of heavy defaults. State-owned companies account for over 55 percent of that debt.

Moreover, Chinese are issuing far more short-term debts. In the third quarter of 2016, 82 percent of Chinese corporate bonds had maturities of less than three years, compared with just 36 percent in the same quarter of 2010.

China’s two steadfast pillars of growth, exports and domestic investment, clearly show cracks in their veneers. China’s exports for October slumped 7.3 percent from the previous earlier, despite the yuan’s depreciation during the past year.

This is reflected in the stock of foreign exchange reserves, which peaked over a year ago at $4 trillion but have now fallen to $3.1 trillion.

Imports have also been falling—clear evidence that domestic demand has slowed more than the authorities or headline numbers acknowledge. Despite stringent capital controls, capital flight has clearly accelerated as affluent Chinese have lost confidence in the domestic economy.

Fixed asset investment is still running at 45 percent of GDP, leading to significant excess capacity in industries ranging from steel to solar panels.

Earlier objectives to lay off 6 million workers in state-owned enterprises early in President Xi Jinping’s term have not materialized, and state-owned banks continue directing credit to prop them up.

So, is the Chinese economy entering a period of stagnation?

Because the credit spigots cannot gush indefinitely and much of the mounting debt will likely go bad, it appears reasonably likely. And the window to solve these problems is quickly closing. (For more from the author of “Is the Chinese Economy Hitting Stagnation?” please click HERE)

Chinese state media has warned the U.S. president-elect against isolationism and interventionism, calling instead for the United States to actively work with China to maintain the international status quo.

President-elect Donald Trump threatened to tear up trade deals and pursue a more unilateral foreign policy under his “America First” principle during a tempestuous election campaign.

But China and other foreign governments are uncertain how much of Trump’s rhetoric will be translated into policy because he has at times made contradictory statements and provided few details of how he would deal with the world.

Trump often targeted China in the campaign, blaming Beijing for U.S. job losses and vowing to impose 45 percent tariffs on Chinese imports. The Republican also promised to call China a currency manipulator on his first day in office.

U.S. isolationist policies had “accelerated the country’s economic crisis” during the Great Depression, warned a commentary by China’s official Xinhua News Agency, though it added that “election talk is just election talk”. (Read more from “China State Media Warns Trump Against Isolationism, Calls for Status Quo” HERE)

Philippine President Rodrigo Duterte announced his “separation” from the United States on Thursday, declaring he had realigned with China as the two agreed to resolve their South China Sea dispute through talks.

Duterte made his comments in Beijing, where he is visiting with at least 200 business people to pave the way for what he calls a new commercial alliance as relations with longtime ally Washington deteriorate.

“In this venue, your honors, in this venue, I announce my separation from the United States,” Duterte told Chinese and Philippine business people, to applause, at a forum in the Great Hall of the People attended by Chinese Vice Premier Zhang Gaoli.

“Both in military, not maybe social, but economics also. America has lost.”

Duterte’s efforts to engage China, months after a tribunal in the Hague ruled that Beijing did not have historic rights to the South China Sea in a case brought by the previous administration in Manila, marks a reversal in foreign policy since the 71-year-old former mayor took office on June 30. (Read more from “Duterte Aligns Philippines With China, Says U.S. Has Lost” HERE)

The world’s second-largest economy is going to make a hard landing one day, China watchers have speculated for several years. The fact is, though, the Middle Kingdom already is well on its way.

Let’s first examine the “official” top-line numbers. In 2007, a year before the great global crisis, China’s real gross domestic product expanded at a 14.2 percent clip. Last year, it grew at 6.9 percent, representing a 50 percent decline.

The official GDP figures are increasingly suspect, however. China often releases its quarterly figures just two weeks after the end of the quarter.

This is remarkable, given a nation of 1.35 billion and the fact that the government doesn’t make any revisions. Growth estimates “conveniently” fall within Beijing’s target range.

Most importantly, credit growth continues to outpace real GDP growth by significant margins. In other words, China’s short-term growth is being pumped up by even more borrowing.

China’s aggregate debt (mostly corporate and government) is approximately 300 percent of GDP, a figure that surpasses that of the United States. Much of this debt is short term in nature and being used to roll over existing debt.

The corporate sector has experienced particular stress, with debt recently soaring as China has continued to prop up its state-owned enterprises. The percent of income used by China’s companies to service their debts has doubled since the 2008 global crisis.

The Bank for International Settlements, a collection of the world’s central banks, released data last week illustrating the explosion of Chinese debt. The bank stated that China’s credit-to-GDP gap stood at 30 percent, the highest of any country since it began collecting data in 1995.

Moreover, the current official GDP figures appear overstated, although the economy isn’t contracting given credit infusions. Growth in both industrial output and retail sales has slowed despite the credit stimulus.

Private investment has grown by only 2.1 percent year-to-date. It accounts for 60 percent of total domestic asset investment, the largest source of growth in the Chinese economy.

The biggest sign of the slowdown in China’s domestic growth: imports, which fell 12.5 percent in July. This definitively shows that domestic spending is shrinking quickly.

So how fast is the Chinese economy actually growing? It’s difficult to say, given the lack of transparency in the statistics. But it appears likely that growth is in the neighborhood of 4.5 to 5.5 percent.

Not quite a “hard landing” yet, but the makings of one seem well on the way. (For more from the author of “China’s Economy Is Headed for a Hard Landing” please click HERE)

The Obama administration has ordered the Pentagon to quit referring to the country’s response to Chinese expansion in the Asia-Pacific as a “competition,” as the word is too inflammatory, sources familiar with the directive told the Navy Times.

Over the past decade, China has aggressively expanded its military presence in the South China Sea, including creating number of fortified, man-made islands within the region.

As a result of the increased Chinese naval presence, countries, including Japan, Vietnam, Taiwan, Malaysia, the Philippines and the United States — in addition to other world powers — have experienced strained relations with Beijing.

The U.S. has, in response to the increased military presence, attempted to form strategic alliances in the region to balance out the expansion.

The Navy has also sailed ships close to disputed boundaries claimed by China to exercise freedom of navigation under the rules of “innocent passage,” in an effort to deter Chinese aggression, according to The Washington Free Beacon.

A number of high-profile U.S. military commanders have also weighed in.

Secretary of Defense Ash Carter and Adm. John Richardson, chief of naval operations, have both previously referred to the American response as a “competition” or “great power competition.”

According to the Navy Times report, in a classified document directed at the Pentagon, the National Security Council recently ordered military leaders to stop using language referring to the dispute as a “competition” when discussing the issue publicly.

The news outlet reported:

[…] a recent directive from the National Security Council ordered Pentagon leaders to strike out that phrase and find something less inflammatory, according to four officials familiar with the classified document, revealed here for the first time by Navy Times.

Obama administration officials and some experts say “great power competition” inaccurately frames the U.S. and China as on a collision course, but other experts warn that China’s ship building, man-made islands and expansive claims in the South and East China seas are hostile to U.S. interests. This needlessly muddies leaders’ efforts to explain the tough measures needed to contain China’s rise, these critics say.

Bryan McGrath, a naval expert and retired destroyer skipper, told the Navy Times the White House’s explanation is “an exercise in nuance and complexity, purposely chosen by the administration to provide maximum flexibility, to prevent them from committing to a real structural approach to the most important national security challenge of our time.”

Despite an international tribunal that found this year China has no rights to waters around man-made and other island chains in the Asia-Pacific region, the country has threatened to move forward with a new island-building project that would put forces within 140 miles of the Philippines’ capital, Manila, and a nearby U.S. military base.

“We have rebuilt China, and yet they will go in the South China Sea and build a military fortress the likes of which perhaps the world has not seen,” Trump said. “Amazing, actually. They do that, and they do that at will because they have no respect for our president and they have no respect for our country.” (For more from the author of “Obama Administration Orders Pentagon to Quit Talking About ‘Competition’ With China” please click HERE)

Upon entering office, President Obama fought a nomenclature battle with the Bush administration over China. “Strategic competitor” became “strategic partner.” The “Strategic Economic Dialogue,” critically, became the “Strategic AND Economic Dialogue.” Despite this lunacy and China’s flagrant disrespect for Obama, our China policy did not change all that much from President Bush’s. Yes, Obama’s fecklessness accelerated the downward trajectory of our position in Asia, but that trajectory was already plunging. Presidents Bush and Obama share the same affliction: muddling our economic and security interests. The muddle results in China’s regional security provocations going unchallenged, and the reasons why are linked.

Firstly, administrations fail to respond to China’s security transgression for fear that it will damage our economics interests. It is a perverse, defensive form of mercantilism. Secondly, we have a bad habit of reaching for economic sanctions as part of our toolkit for responding to security threats.

For both of these reasons, China’s security transgressions should only beget security responses.

Why? Because economic sanctions tend to boomerang back on us and act as a regressive tax on the middle class. We may not like it, but American and Chinese economic interests align more often than not. We and the global economy need a healthy Chinese economy (and vice versa). Most of what we would sanction are things that we buy or need for manufacturing inputs. That spells inflation here and less competitive manufacturing and exports. Imagine Chrysler sales if the Detroit automakers’ vehicles suddenly cost more than a Mercedes. And that is before Chinese retaliation or a move in the value of the dollar.

The other big reason Chinese security violations should be met with a security response is the empty nature of our economic threats. Policy makers usually figure out that economic threats will hurt U.S. consumers and consequently back down. We end up looking feckless, and China’s security challenges go unanswered.

When China tests us, we need a firm response. Failure to do so just invites more antics from Beijing, and we look like, well, Obama.

During his last trip to China the Chinese gratuitously snubbed Obama by making him deplane “from the ass end of the plane.” China likewise set the tone in 2010 in Copenhagen when the they sent a junior official to negotiate with Obama. After making the president wait for hours, Obama met with the waterboy.

China has stolen the files of millions of Americans, including me. Maybe the government passed China a stern note, but as far as I could tell the only administration response was to give me a subscription to an identity monitoring service … as if China using my credit card numbers is the worry.

Similarly, when China established an air defense identification zone (ADIZ) in the East China Sea in November 2013, Obama’s silence was deafening. China made a naked attempt at a territory grab that could restrict trade routes, freedom of navigation, and pit our ally Japan against China. Obama flew one unarmed B52 sortie through the area and then advised U.S. airlines to comply with China’s demands.

So when China began building islands in the South China Sea and claiming new territory, it correctly assumed a weak U.S. response would follow.

Each of these events had an appropriate rejoinder. Obama should have refused the meeting with the junior official in Copenhagen and ignored China’s demands to deplane from the back of Air Force One. Why did he follow small orders from Beijing’s communist leadership? The ADIZ and the South China Sea situations placed China’s credibility in our hands, but we did not use that leverage. We should have regularly sent planes and ships through the territory China claimed. When China did not back up their threats of force (and they would not have), we could have advertised it.

It should trouble us that both Hillary Clinton and Donald Trump want to lead with an economic and not a security response. They thunder about economic reprisal, but, should they be elected, will almost certainly back down. Clinton has adopted Sen. Schumer, R-N.Y. (F, 2%) and Donald Trump’s currency manipulation hobbyhorse (which, by the way, is wildly inaccurate), and Trump has his trade war threat. Both are terrible ideas, though does anyone doubt that they will get left on the cutting room floor after November? To be sure, both belong on the floor, but we should worry that — in the midst of the flip-flops — we will once again fail to respond to China.

China presents a security challenge for us in Asia, but we must better relearn how to respond. Our reflexive grasp for economic responses creates threats from which we must eventually climb down or, if followed through on, would significantly harm the U.S. economy. The Chinese must be overjoyed at economic threats because they must know we do not mean it. China sees the American presence in the region as limiting its geopolitical rise, but the zero-sum thinking stops there. Economically they need us, and we need them. While no politician, especially Trump and Clinton, will say that in our populist moment, failure to do so merely aids China. (For more from the author of “A Proper American Response to Chinese Aggression and Humiliation” please click HERE)

Japan is providing regional partners with the tools required for future showdowns with China in the South China Sea.

Japanese Prime Minister Shinzo Abe met Tuesday with Philippines President Rodrigo Duterte and agreed to gift the Philippines two large patrol ships and five surveillance aircraft, according to Reuters.

The promised vessels and aircraft will be in addition to the 10 coast guard ships Japan promised to the Philippines as part of a $158 million soft loan agreement in 2015. The first of the 10 ships arrived in August.

Abe will reportedly also give Malaysia two used coast guard vessels, reports the Nikkei Asian Review. Along with the ships, Japan will provide technical support and repair services.

Japan agreed to furnish Vietnam with $1.7 million in used patrol vessels and equipment in September last year. The two sides decided to accelerate and enhance the patrol boat program during a high-level meeting in May.

The Philippines, Malaysia, and Vietnam are all engaged in territorial disputes with China in the South China Sea.
China claims the vast majority of the South China Sea, through which roughly $5 trillion in global trade passes each year. The Permanent Court of Arbitration in The Hague ruled against China’s claims in mid-July; however, China has completely rejected the ruling and the authority of the arbitration tribunal.

Between 2010 and 2016, there were 45 incidents in the South China Sea, and China’s coast guard vessels were involved in 68 percent of these incidents, the Center for Strategic and International Studies (CSIS) revealed in a recent report.

Over the past five years, China has spent roughly $1.74 billion annually on its coast guard. The annual coast guard budgets for the Philippines and Vietnam have only been around $100 to $200 million.

China’s total coast guard tonnage increased from 110,000 to 190,000 between 2010 and 2016. The total coast guard tonnage for the Philippines, Malaysia, and Vietnam are only 20,000, 6,500, and 15,000 respectively.

China is able to engage in provocative behavior in the South China Sea because other claimant states lack the coast guard capabilities to stand up to China.

“We’re seeing bullying, harassment and ramming of vessels from countries whose coast guard and fishing vessels are much smaller, often to assert sovereignty throughout the South China Sea,” Bonnie Glaser, a CSIS regional security expert, explained in an interview with Reuters. “The evidence is clear that there is a pattern of behavior from China that is contrary to what law enforcement usually involves.”

Japan’s coast guard budget by comparison is around $1.5 billion, which suggests that Japan has the ability to boost the capabilities of some of China’s neighbors.

Chinese ships, including several coast guard vessels, have reportedly returned to the Scarborough Shoal, stirring concerns in the Asia Pacific and beyond.

China’s stance on Japan’s involvement in the South China Sea has been fairly consistent. “Japan is not a concerned party in the South China Sea issue, and it has no right to intervene in relevant disputes,” explained Chinese Ministry of National Defense spokesperson Colonel Wu Qian at a press conference last month.

China has told Japan that if it expands its operations and attempts to participate in a freedom-of-navigation drill in the South China Sea, it will cross a “red line.” (For more from the author of “THANKS, MR. OBAMA: Japan Prepares Warplanes and Naval Forces to Repel China’s Rising Ambitions” please click HERE)

Some scientists are calling a discovery in China’s Yellow River Valley evidence that supports a biblical flood.

OneNewsNow.com reports that archaeologists recently uncovered bones of children in the Yellow River Valley. The children appear to have been trapped by a massive flood. The bones have been dated to around 2,000 B.C., which is consistent with when scientists and historians believe the biblical account of Noah’s flood occurred.

Prominent biblical apologist and scientist Ken Ham, who is also the head of the Creation Museum and the newly-opened Ark Encounter attraction, noted that China, like many cultures, has a story of a great flood.

“Whether it’s the American Indians or the Fijians, Hawaiians, the Eskimos, Australian Aborigines … back to the Babylonians, there are flood legends in cultures all over the world,” Ham explained.

“And this particular flood legend from China – when you read it – it talks about it was basically a global flood, the way it was described … and there was a man in particular associated with that flood,” he continued. (Read more from “China: New Discovery Supplies Evidence of Biblical Flood” HERE)

An FBI computer technician with top-secret clearance who regularly accessed restricted information has been outed as a Chinese spy. Working in the agency’s large New York City office, Reuters reports, Kun Shan Chun was convicted Monday of acting as an agent of a foreign government and will be sentenced December 2. He had been arrested in March after a sting operation.

Chun, known as “Joey,” came to this country from China with his parents when he was 5. A naturalized citizen of the United States, he began working for the FBI in 1997 but admitted only to passing secrets to the Chinese government from 2011 to 2016, working through a Chinese printer company, for which he worked as a researcher and consultant.

The assistant U.S. attorney said that the information he passed to the Chinese government “included the identity and travel plans of an FBI agent; an internal organizational chart; and photos he took of documents in a restricted area related to surveillance technology,” according to Reuters.

Rising Chinese Espionage

Chun had been charged with four counts, but accepted a plea bargain for the one charge with the agreement he would serve a short sentence. “Since the government’s evidence against Chun looks airtight,” wrote security expert John R. Schindler, “it seems likely that the Feds don’t want a trial which would require the Bureau to explain in detail what their mole gave to Beijing.” Writing in The Observer, a New York City weekly, he argued that

rising Chinese espionage presents a serious problem for the United States because it’s so heavily ethnic in character. Beijing expects its nationals overseas — whom we want to view as patriotic immigrants and naturalized Americans — to serve as their spies abroad, and some of them are quite willing to do so, particularly if China sweetens the pot with financial incentives. This seems to have been the case with Chun.

Schindler warned that such spies are hard to catch, partly because of “political correctness.” No one “wants to be accused of ethnic bias — or worse “racial profiling” — over molehunts. As with counterterrorism in the age of Obama, it’s worse for your counterespionage career to be accused of racism than to miss the mole right in your midst.”

Schindler has, he said, knowledge of “suspected Chinese moles inside our Intelligence Community” who “were allowed to resign, never to face charges of any kind.”

The Daily Caller quoted a report by Manhattan U.S. Attorney Preet Bharara stating that Chun’s is the second Chinese espionage case in the past four months. The other is the case of Amin Yu, “‘who smuggled underwater drone parts from U.S. companies to a state-owned university in China that does military research.’” Yu was a permanent resident who used her own companies to acquire the parts she sent on to China.

The week before Yu was arrested, Newsweek reported, Chinese citizen Fuyi Sun was arrested in another sting operation for buying strictly controlled carbon fiber to send to China. And those arrests followed yet others, including this one described in a New Yorker feature. (For more from the author of “FBI Technician Convicted of Spying for China” please click HERE)

China’s government sought to downplay fears of conflict in the South China Sea after an influential state-run newspaper said on Tuesday that Beijing should prepare for military confrontation.

Editorials in the Global Times newspaper ahead of a July 12 international court ruling on competing claims in the South China Sea by China and the Philippines said the dispute had already been complicated by U.S. intervention.

It faced further escalation due to the threat posed by The Hague-based tribunal to China’s sovereignty, the paper said.

“Washington has deployed two carrier battle groups around the South China Sea, and it wants to send a signal by flexing its muscles: As the biggest powerhouse in the region, it awaits China’s obedience,” the Global Times said.

The paper said China should speed up development of its military deterrence. While it could not keep up with the United States in the short-term, “it should be able to let the U.S. pay a cost it cannot stand if it intervenes in the South China Sea dispute by force,” the paper said. (Read more from “China Says Wants Peace After Paper Warns on South China Sea Clash” HERE)